Mr. Tejinder Singh, Chandigarh V. DCIT, Chandigarh

ITA 1122/CHANDI/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1387 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Rule 8D; Capital Gains
• Section: 143(3); 14A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1122/CHD/2010 ASSESSMENT YEAR: 2006-07 MR TEJINDER SINGH, VS. THE DCIT, CIRCLE 1(1), CHANDIGARH CHANDIGARH PAN NO. ADYPS3395K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINEET KRISHAN RESPONDENT BY: SMT. JAISHREE SHARMA ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), CHANDIGARH DATED 26.5.2010 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ORDER PASSED UNDER SECTION 250(6) BY THE L D. CIT(A), CHANDIGARH IN APPEAL NO. 172/P/08-09 DATED 26.5.2010 IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) GRAVELLY ERRED IN UPHOLDING THE ACTION OF TH E LD. ASSESSING OFFICER IN TREATING THE INCOME FROM S HORT TERM CAPITAL GAIN AS INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. 2 3. THAT THE LD. CIT(A), CHANDIGARH GRAVELLY ERRED IN E NHANCING THE INCOME OF THE ASSESSEE BY APPLYING THE PROVISIO NS OF SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH R ULE 8D(2). 3. THE GROUND NO.1 RAISED BY THE REVENUE BEING GENE RAL IN NATURE IS DISMISSED. 4. THE ISSUE IN GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST THE TREATMENT OF PROFITS ARISING ON SALE OF SHARES WHIC H WERE SHOWN AS INCOME FORM SHORT TERM CAPITAL GAIN (STCG) BY THE ASSESSEE , BUT WERE ASSESSED AS INCOME FROM BUSINESS BY THE ASSESSING OFFICER. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN INCOME FROM B OTH LONG TERM CAPITAL GAINS (LTCG) AND STCG ON SALE OF SHARES. THE INCOM E FROM LTCG OF SHARES AT RS. 26,94,586/- WAS SHOWN BY THE ASSESSEE AND INCOME FROM STCG WAS SHOWN AT RS. 17,21,761/-, IN ADDITION TO T HE INCOME FROM BANK INTEREST AND DIVIDEND INCOME. THE COMPUTATION OF IN COME IS PLACED AT PAGE 15 OF THE PAPER BOOK ALONG WITH THE DETAILS AT PAGES 8 TO 13 OF THE PAPER BOOK. THE ASSESSING OFFICER NOTED THE ASSESSE E TO HAVE CARRIED OUT THE SALE AND PURCHASE TRANSACTIONS OF SHARES THROUG H VARIOUS BROKERS DURING THE YEAR UNDER CONSIDERATION AS TABULATED AT PAGE 2 IN PARA 2.1 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER FURTHER NOTICED THE ASSESSEE TO HAVE MADE HUGE PURCHASES OF SHARES FREQUENTLY AN D FURTHER THE ASSESSEE HAD BORROWED FUNDS FOR MAKING INVESTMENTS IN SHARES . THE ASSESSEE HAD TAKEN A LOAN FROM HDFC BANK AND THE SAID LOAN WAS U TILIZED FOR INVESTMENT IN THE SHARES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE 3 ASSESSEE HAD INDULGED IN AN ADVENTURE IN THE NATURE OF TRADE AND BECAUSE OF THE FREQUENCY AND MAGNITUDE OF THE TRANSACTIONS, THE ASSESSEE, AS PER THE ASSESSING OFFICER, WAS ACTIVELY INDULGED IN THE BUSINESS OF TRADING OF SHARES. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE SAID INCOME FROM STCG SHOULD NOT BE TREATED UNDER HEAD INCOME FROM BUSINESS. THE EXPLANATION OF THE ASSESSEE WAS THAT HE HAD MADE HU GE INVESTMENTS IN THE SHARES WHICH WERE BEING REFLECTED IN HIS TAX RETUR NS. THE ASSESSEE FURTHER CONTENDED THAT REGULARLY INCOME FROM SHORT TERM CAP ITAL GAINS AND LONG TERM CAPITAL GAINS WERE BEING SHOWN IN ITS TAX RETU RNS. FURTHER, IT WAS CLAIMED BY THE ASSESSEE THAT THE DELIVERY IN CASE OF ALL THE SHARES WAS TAKEN ON WHICH INCOME FORM STCG HAD BEEN REFLECTED. THE ASSESSEE ADMITTED TO HAVE UTILIZED ITS OWN FUNDS IN INVESTM ENT IN THE SHARES AND ALSO TO HAVE BORROWED FUNDS FOR MAKING INVESTMENTS. THE INTEREST PAID ON BORROWED FUNDS WAS CLAIMED AS DEDUCTION UNDER THE H EAD INCOME FROM STCG. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE CBDT INSTRUCTION NO.1827 DATED 31.8.2009 AND CIRCULAR NO .4 OF 2007 DATED 15.6.2007 AND IN THE LIGHT OF VARIOUS JUDGMENTS, AS THE ASSESSEE HAD MADE HEAVY PURCHASE OF SHARES, THE TRANSACTIONS COULD NO T BE TREATED AS AN INVESTMENT TRANSACTIONS. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN THE CASE OF THE ASSESSEE, THE PURCHASE TRANSACTIONS WER E MADE ONLY WITH THE INTENTION TO RESALE AT A PROFIT. ACCORDINGLY, THE INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . THE CIT(A) IN VIEW OF THE VARIOUS FACTS AS ENUMERATED IN THE APPELLATE ORDER UPHELD THE ORDER OF THE ASSESSING OFFICER IN VIEW OF THE MAGNITUDE A ND FREQUENCY OF THE TRANSACTIONS AND ALSO THE SYSTEMATIC PURCHASE AND S ALE OF SHARES BEING INDULGED IN BY THE ASSESSEE. THE ASSESSEE IS IN AP PEAL AGAINST THE SAID ORDER OF THE CIT(A). 4 6. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT SIM ILAR INCOME SHOWN UNDER THE HEAD STCG WAS ACCEPTED IN ASSESSMENT YEAR S 2004-05 AND 2005-06. THE ASSESSMENT IN ASSESSMENT YEAR 2005-06 AS PER LD. AR FOR THE ASSESSEE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. OUR ATTENTION WAS DRAWN TO THE DETAILS OF INCOME FROM STCG FURNIS HED ON RECORD AND IT WAS POINTED OUT BY THE LD. AR THAT DELIVERY OF EACH SHARE WAS TAKEN BY THE ASSESSEE AND AFTER HOLDING THE SAME FOR A SHORT PERIOD, THE SAME WERE SOLD AND THE PROFITS WERE DECLARED AS INCOME FROM S TCG. IT WAS ALSO POINTED OUT BY THE LD. AR THAT IN SOME TRANSACTIONS , THE SHARES WERE PURCHASED IN THE PRECEDING YEAR, BUT WERE SOLD DURI NG THE YEAR UNDER APPEAL. THE NEXT CONTENTION OF THE LD. AR WAS THAT INCOME FROM LTCG DECLARED BY THE ASSESSEE ON SALE OF SHARES HAS BEEN ACCEPTED IN ENTIRETY BY THE ASSESSING OFFICER. THE LD. AR ASSAILED THE OBS ERVATION OF THE ASSESSING OFFICER THAT INTENTION OF THE ASSESSEE WH ILE MAKING THE INVESTMENT WAS TO MAKE PROFITS. IT WAS POINTED OUT BY THE LD. AR THAT EVEN WHERE INVESTMENTS ARE BEING MADE, SUCH INVESTM ENTS ARE FOR GETTING GAINS AND NOT LOOSING THE CAPITAL. WHEN CONFRONTED , IT WAS CLARIFIED BY THE LD. AR FOR THE ASSESSEE THAT THIS BEING THE CAS E OF AN INDIVIDUAL, NO BOOKS OF ACCOUNT WERE BEING MAINTAINED AND ASSESSEE WAS ALSO NOT MAINTAINING ANY BALANCE SHEET. FURTHER RELIANCE WA S PLACED ON THE RATIO LAID DOWN IN GOPAL PROHIT V JCIT [122 TTJ 87 (MUMBA I)] IN RESPECT OF THE GUIDELINES REFERRED TO BY THE ASSESSING OFFICER AND CIT(A), THE LD. AR POINTED OUT THAT TRANSACTIONS IN RELATION TO TH E SECURITIES IS COVERED UNDER THE DEFINITION OF SECTION2 (42-A) OF THE INCO ME TAX ACT. 7. THE LD. DR FOR THE REVENUE POINTED OUT THAT DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS NOT ENGAGED IN ANY OTHER BUSINESS EXCEPT THE SALE AND PURCHASE OF SHARES / SECURITIES. IT W AS FURTHER STRESSED BY THE 5 LD. DR THAT THE ASSESSEE HAD TAKEN A LOAN FROM HDFC FOR INVESTMENT IN SHARES AND BORROWINGS BEING UTILIZED FOR THE PURPOS E OF INVESTMENT, CLEARLY ESTABLISHES THE CASE OF THE DEPARTMENT. FU RTHER RELIANCE WAS PLACED BY THE LD. DR ON THE ORDERS OF THE ASSESSING OFFICER AND CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE OVER A PERIOD OF YEARS IS MAKING INVESTME NT IN SHARES AND IS DISCLOSING INCOME BOTH FROM LTCG AND STCG ON SALE O F SUCH SHARES. SUCH INCOME AS SHOWN BY THE ASSESSEE HAS BEEN ACCEP TED BY THE ASSESSING OFFICER IN THE PRECEDING YEARS. THE ASSESSMENT PROC EEDINGS RELATING TO THE ASSESSMENT YEAR 2004-05 WERE COMPLETED U/S 143(3) O F THE ACT UNDER WHICH BOTH THE INCOME FROM LTCG AND STCG WAS ACCEPT ED AS SUCH. THE COPY OF THE COMPUTATION OF INCOME IS PLACED AT PAGE 18 OF THE PAPER BOOK. SIMILAR INCOME HAS BEEN SHOWN IN ASSESSMENT YEAR 20 05-06 AND ACCEPTED VIDE ORDER U/S 143(1) OF THE ACT AS PER THE LD. AR FOR THE ASSESSEE. 9. FROM THE PERUSAL OF DETAILS FURNISHED IN THE PAP ER BOOK, WE FIND THE ASSESSEE TO HAVE SHOWN INCOME FROM LTCG ON SALE OF SHARES AT RS. 26,94,586/- AND INCOME FROM STCG AT RS. 17,21,761/- . THE SCRIPT WISE BREAK UP OF INCOME FROM LTCG IS PLACED AT PAGES 8 & 9 OF THE PAPER BOOK. THE TOTAL GAIN SHOWN BY THE ASSESSEE HAS BEE N ACCEPTED AS INCOME FROM STCG BY THE ASSESSING OFFICER DURING THE YEAR UNDER CONSIDERATION. FURTHER SCRIPT WISE DETAILS OF INCOME FROM STCG IS ENCLOSED AT PAGES 10 TO 13 OF THE PAPER BOOK AND THE PERUSAL OF THE SAME REFLECTS THE ASSESSEE TO HAVE PURCHASED SHARES AND AFTER HOLDING THE SAME FOR A SHORT PERIOD, THE SAME WERE SOLD AND THE PROFIT ON SALE OF SHARES WAS BOOKED AS INCOME FROM STCG BY THE ASSESSEE. THE ASSESSEE HAS ENTERE D INTO VARIOUS TRANSACTIONS ON SALE AND PURCHASE OF SHARES OF DIFF ERENT COMPANIES AS 6 TABULATED AT PAGES 10 TO 13 OF THE PAPER BOOK. MAG NITUDE OF THE TRANSACTIONS DOES NOT DETERMINE THE NATURE OF INCOM E EARNED BY THE ASSESSEE. IT IS THE INTENTION OF THE ASSESSEE WHIC H DETERMINES THE CHARACTER OF INCOME EARNED BY THE ASSESSEE. THE AS SESSEE BEING AN INDIVIDUAL WAS INDULGING IN SALE AND PURCHASE OF SH ARES OVER A PERIOD OF YEARS, IN ADDITION TO THE BUSINESS CARRIED ON BY HI M. HOWEVER, DURING THE YEAR UNDER APPEAL, THE ASSESSEE HAS NOT SHOWN ANY I NCOME FROM BUSINESS BUT HAS INDULGED IN TRANSACTIONS RELATING TO SALE A ND PURCHASE OF SHARES, INCOME FROM WHICH HAS DULY BEEN REFLECTED BY THE A SSESSEE IN ITS RETURN OF INCOME. MERELY BECAUSE THERE IS A FREQUENCY AND MAGNITUDE OF TRANSACTIONS, DOES NOT ESTABLISH THE CASE OF THE AS SESSING OFFICER THAT THE ASSESSEE IS CARRYING ON AN ACTIVITY IN THE NATURE O F TRADE. SEVERAL INGREDIENTS ARE NECESSARY FOR CARRYING ON A BUSINES S ACTIVITY, WHICH FROM THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE DO NOT APPEAR TO BE THE CASE. WE FIND NO MERIT IN THE AFORESAID ADDITION M ADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) .IN THE ENTIRETY O F FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THE ASSESSEE TO HAVE EARNED INCOME FORM STCG AS AGAINST INCOME FROM BUSINESS ASSESSED BY THE AUTHORITIES BELOW. WE FIND SUPPORT FROM THE RATIO LAID DOWN B Y THE MUMBAI BENCH OF THE TRIBUNAL IN JANAK S.RANGWALA VS. ACIT [11 S OT 627 (MUMBAI)] AND ACCORDINGLY WE ALLOW GROUND NO.1 RAISED BY THE ASSE SSEE AND DIRECT THE ASSESSING OFFICER TO COMPUTE THE PROFIT ON SALE OF SHARES UNDER THE HEAD INCOME FROM STCG. THUS GROUND NO.2 RAISED BY T HE ASSESSEE IS ALLOWED. 10. THE ISSUE IN GROUND NO..3 IS AGAINST ENHANCEMEN T CARRIED OUT BY THE LD. CIT(A) IN MAKING AN ADDITION BY APPLYING THE PR OVISIONS OF SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D(2) OF THE I.T. RULES. 7 THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE AS SESSEE HAD CLAIMED INTEREST EXPENDITURE ON THE LOAN TAKEN FOR ENHANCEM ENT IN SHARES, WHICH WAS CLAIMED AS DEDUCTION AGAINST THE INCOME FROM S TCG. IT WAS FURTHER POINTED OUT THAT THE DIVIDEND INCOME WAS EARNED ON THE SHARES, INVESTMENT IN WHICH WAS MADE BY THE ASSESSEE PRIOR TO ASSESSME NT YEAR 2004-05. ACCORDINGLY, AS PER THE LD. AR FOR THE ASSESSEE THE RE WAS NO MERIT IN INVOKING THE PROVISIONS OF SECTION 14A IN THE PRESE NT CASE SINCE THE LOAN FROM HDFC WAS UTILIZED FOR INVESTMENT IN SHARES, AS POINTED OUT IN CONNECTION WITH GROUND NO. 2 RAISED BEFORE THE TRIB UNAL. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V WINSOME TEXTILE INDUSTRIES LTD [319 ITR 204 (P&H)] IN ORDER TO WARRANT DISALLOWANCE U/S 14A OF THE ACT. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE RATIO LAID DOWN IN GODREJ BOYCE MANUFACTURING COMPANY. LTD V DCIT & ANR [(2010) 234 CTR (BOM)1 ] FOR THE PROPOSITION THAT THE ENHANCEMENT MADE BY TH E ASSESSING OFFICER U/S 14A WAS WARRANTED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT READ WIT H RULE 8D(2) OF THE I.T. RULES HAVE BEEN MADE BY THE CIT(A) AFTER SHOW CAUSING THE ASSESSEE IN CONNECTION WITH THE ENHANCEMENT OF THE INCOME. THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2006-07. WE FIND THAT THE HON'B LE BOMBAY HIGH COURT IN GODREJ BOYCE MANUFACTURING COMPANY V DCIT (SUPR A) WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY OF RULE 8D(2) HELD THE SAME TO BE APPLICABLE W.E.F. ASSESSMENT YEAR 2008-09. IT WAS FURTHER HELD BY THE HON'BLE COURT THAT EVEN IN THE ABSENCE OF SUB SECTI ONS (2) & (3) TO SECTION 14A AND RULE 8D, THE ASSESSING OFFICER WAS NOT PREC LUDED FROM MAKING 8 APPORTIONMENT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. APPLYING THE ABOVE SAID RATIO TO THE FACTS OF THE PRESENT CASE B EFORE US, WE FIND THAT THE DISALLOWANCE U/S 14A IN THE PRESENT CASE HAS BEEN M ADE BY APPLYING THE PROVISIONS OF RULE 8D, WHICH WAS INSERTED W.E.F. 24 .3.2008 AND THE SAME IS NOT APPLICABLE TO THE YEAR UNDER APPEAL. THE C IT(A) WHILE ENHANCING INCOME HAS FAILED TO GIVE A FINDING IN RESPECT OF A NY EXPENDITURE BEING ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME AND THE SOLE BASIS FOR DISALLOWANCE IS APPLICATION OF RULE 8D. IN VIEW TH EREOF, WE FIND NO MERIT IN THE AFORESAID DISALLOWANCE U/S 14A OF THE ACT AN D WE THEREBY DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. THE GROUND N O..2 RAISED BY THE ASSESSEE IS THUS ALLOWED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF FEBRUARY, 2010. SD/- SD/- (N.BARATHVAJA SANKAR) (SUSHMA CHOWLA) VICE PRESIDENT JUDICIAL MEMBER DATED : 23 RD FEBRUARY, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR